COMING SUNDAYThe Reno 2020 growth and economic development project, launched by the Reno Gazette-Journal in October, will look at the state's tax structure and challenges it faces as the result of it.

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Nevada is on track to developing a serious long-term deficit with its budget unless key changes are made to add balance to the state's revenue and tax structure, a new report found.

The report, released today by Brookings Mountain West and the Morrison Institute for Public Policy in Arizona State University, analyzed the public budget crises in four states: Nevada, California, Arizona and Colorado.

The report recommended diversification of the tax systems across the entire four-state area, adding that "the region's massive budget gaps cannot responsibly be closed with only spending reductions."

Nevada was singled out for having "one of the least diversified tax systems in the country." The state's addition of tax provisions into the Constitution coupled with a heavy reliance on formula mandates that dedicate revenue to several spending programs also makes it one of the least flexible tax systems in the nation, the report found.

"Nevada relies heavily on sales tax and gaming revenue and has no personal and corporate income tax, so you have one of the most narrow state revenue systems found in the country," wrote lead researcher Matthew Murray, a professor of economics at the University of Tennessee. "With property and sales tax revenue suffering, it is not at all clear where Nevada will find the revenue to fund services, including those that support economic development moving forward."

With Nevada potentially facing a longer trek out of the recession than the rest of the nation, it's time for the state to take a serious look at its tax structure and make it more in line with its new economic realities, said Mark Muro, co-director of Brookings Mountain West.

"You basically have a revenue system designed for different circumstances and the state's economy will be substantially altered moving forward," Muro said. "You're looking at flatter migration, depressed housing construction, less consumption and flatter gaming growth. The state really needs to take a look at its revenue system to make sure it provides sustainable revenues under what may be a permanently different economic setup for the state."

A key challenge for Nevada is the political unpalatability of tax increases, Muro said. Nevada's rigid tax system also limits its options in addressing the deficit since some tax provisions are embedded in the Nevada Constitution and require a vote to be changed.

Potential avenues Nevada can consider in diversifying the tax base include a consumer services tax or gross receipts tax for business, which can stand up to constitutional scrutiny, Muro said. Broadening the tax base also is something that can be more palatable since it isn't a straight-up tax increase.

Richard Bartholet, research director of the Bureau of Economic Research at the University of Nevada, Reno, agreed.

"If you broaden the tax base, then you can lower the tax rate and still have the same amount of revenue, which is based on base times rate," Bartholet said. "So, there won't be as much resistance to that because people are paying lower tax rates."